N.B.A. Disputes Forbes Analysis Suggesting League is Profitable

In a statement e-mailed to The Times, Tim Frank, a spokesman for the National Basketball Association, has disputed an analysis by Forbes Magazine suggesting that the N.B.A. turned a $183 million operating profit in its 2009-10 season. Instead, according to Mr. Frank, the league lost $340 million that year and has lost money every year during the current collective bargaining agreement.

Mr. Frank also disputes several other claims in the Forbes analysis, which was the basis of my article on the league’s financial condition this morning. In addition, he has disputed claims about the league’s accounting procedures and financial condition made by other sources cited in the article, and the attendant characterizations about them in the FiveThirtyEight analysis.

Mr. Frank’s full statement is reproduced below:

The information from Forbes that serves as the basis for this article is inaccurate and we do not know how they do their calculations. Forbes does not have the financial data for our teams and the magazine’s estimates do not reflect reality.

Precisely to avoid this issue, the N.B.A. and its teams shared their complete league and team audited financials as well as our state and Federal tax returns with the Players Union. Those financials demonstrate the substantial and indisputable losses the league has incurred over the past several years.

The analysis that was posted this afternoon has several significant factual inaccuracies, including:

“[The N.B.A.] is a fundamentally healthy and profitable business”

¶ The league lost money every year of the just expiring CBA. During these years, the league has never had positive Net Income, EBITDA or Operating Income.

“Many of the purported losses result from an unusual accounting treatment related to depreciation and amortization when a team is sold.”

¶ We use the conventional and generally accepted accounting (GAAP) approach and include in our financial reporting the depreciation of the capital expenditures made in the normal course of business by the teams as they are a substantial and necessary cost of doing business.

We do not include purchase price amortization from when a team is sold or under any circumstances in any of our reported losses. Put simply, none of the league losses are related to team purchase or sale accounting.

“Another trick … moving income from the team’s balance sheet to that of a related business like a cable network…”

¶ All revenues included in Basketball Related Income (“BRI”) and reported in our financial statements have been audited by an accounting firm jointly engaged by the players’ union and the league. They include basketball revenues reported on related entities’ books.

“Ticket revenues … are up 22% compared to 1999-2000 season”

¶ Ticket revenues have increased 12% over the 10 year period, not the 22% reported.

“17 teams lost money according to Forbes … Most of these losses were small…”

¶ Forbes’s claim is inaccurate. In 2009-10, 23 teams had net income losses. The losses were in no way “small” as 11 teams lost more than $20M each on a net income basis.

“The profits made by the Knicks, Bulls and Lakers alone would be enough to cover the losses of all 17 unprofitable teams.”

¶ The Knicks’, Bulls’ and Lakers’ combined net income for 2009-10 does not cover the losses of the 23 unprofitable teams. Our net loss for that year, including the gains from the seven profitable teams, was -$340 million.

“Forbes’s estimates – a $183 million profit for the NBA in 2009-10, and those issued by the league, which claim a $370M loss…”

¶ Forbes’s data is inaccurate. Our losses for 2009-10 were -$340 million, not -$370 million as the article states.

¶ This is not an accurate statement as operating income in the latest Forbes data (2009-10) is $5M greater than what is reported in the Hornets audited financials.

One specific point of clarification: the Hornets’ leaked financial data reported a $6.4 million loss in 2007-8 but a $5.9 million gain in 2008-9. By comparison, the Forbes data estimated a $3 million gain in 2007-8 but a small loss of less than $1 million in 2008-9. The difference between the two figures — an average of about $1.5 million over the two-year period — is small. Mr. Frank, however, is referring to the Hornets’ financial performance in 2009-10, which was not detailed in the leaked data.

Otherwise, I simply have no way to adjudicate the N.B.A.’s claims. Mr. Frank’s statement includes several specific claims that have the league has not made publicly before, but in general the league has not made substantial detail on its financial condition, or its accounting procedures, available to the general public.

The Forbes data may suffer from this lack of publicly-available information, but they remain the only independent estimates of the league’s financial condition. In my view, a degree of skepticism is appropriate toward any claims made about the N.B.A.’s finances.

I look forward to continuing to report on the story as further information becomes available.

Nate Silver is the founder and editor in chief of FiveThirtyEight. @natesilver538